In this article, we will discuss the 8 Most Undervalued Industrial Stocks to Buy According to Analysts.
Despite labor shortages, supply chain disruptions, and uncertain demand, the manufacturing industry remains on the front foot. Market experts believe that the production of industrial goods— a segment consisting of aircraft, automobiles, chemicals, computers, heavy machinery, oil, and steel— is expected to see strong momentum in the near term. This broader industry is expected to be supported by the generational pivot from machine-based assembly lines to “Smart Factories.” The industry continues to focus on robotics, the Internet of Things (IoT), Augmented Reality (AR), and numerous other cutting-edge technologies.
As per MarketsandMarkets, the global Industry 5.0 should reach US$255.7 billion by 2029, demonstrating a CAGR of ~31.2 % between 2024 – 2029. The experts opine that numerous factors are expected to propel this growth, including rapid technological advancements in AI, robotics, and Industrial 3D Printing, among others. These advancements respond to the increased demand for customized products and personalized experiences and promote a human-centric approach to manufacturing, empowering workers with advanced tools and technologies.
Economic Conditions and Impact on Industrial Demand
The economy has been demonstrating mixed signals when it comes to the future of expansion. As per Newmark, consumer spending, industrial production, and inflation readings have positively exceeded anticipations in Q2 2024. However, the labor market has been cooling, with firms continuing to face the challenge of increased interest rates. According to the report released by the firm in mid-August, the container traffic at the US ports increased to the highest level in 2 years, with shippers hedging against disruption and retailers gradually stacking up inventories to reach normal levels. The company anticipates annualized growth in imports across the latter half of 2024.
Manufacturing construction spending touched new heights, coming at $121.5 billion in May 2024, approximately double the pre-COVID-19 5-year average. While The South is collecting a significant share of this investment, the manufacturing growth has been driving additive demand for industrial space. Moving forward, evolving and tech-enabled trends, along with new players in e-commerce, should continue to drive demand.
Additionally, the company believes that consumer spending has been mixing in-store, online, and omnichannel behaviors. This is because well-established retailers are investing in all such options. The report highlighted that ~42% of e-comm orders previous year involved stores, demonstrating an increase from ~27% in 2015. New e-comm entrants- mainly social media platforms monetizing audiences throughout the world- continue to join the race. At the expected ~6.7% CAGR over the upcoming few years, e-comm growth should continue to fuel industrial demand. An expected 1.2 msf of logistics space is required to help every additional $1.0 billion in e-comm sales gains.
According to the CommercialEdge market report for September, the industrial sector rebalanced in 2024 and it continues to again grow at a healthy pace after witnessing softer demand earlier. Census Bureau figures demonstrate a 1.3% rise in e-commerce sales for Q2 2024 and 6.7% YoY growth, with the segment’s share of core retail sales touching the highest level since the peak of COVID-19. The industrial space is also getting the support from growing warehouse and storage sector, which added ~25,000 jobs so far this year after declining ~8.5% between May 2022 and December 2023. Finally, expectations about Amazon increasing its lease activity hold up well for the broader industrial sector.
A close-up of a large industrial compressor in the oil and gas industry.
Our methodology
To make a list of the 8 Most Undervalued Industrial Stocks to Buy According to Analysts, we used a Finviz screener to extract stocks from the relevant industry. Next, we chose the ones that are trading lower than the forward earnings multiple of 23.52x (since the broader market trades at ~23.52x, as per WSJ). Finally, we ranked the stocks according to their potential upside, as of October 8. We also mentioned the hedge fund sentiments around each stock, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
8 Most Undervalued Industrial Stocks to Buy According to Analysts
8) ADT Inc. (NYSE:ADT)
Forward P/E as of October 8: 9.62x
Number of Hedge Fund Holders: 23
Average Upside Potential: 15.38%
ADT Inc. (NYSE:ADT) provides security, interactive, and smart home solutions to residential and small business customers.
In its recent earnings call, ADT Inc. (NYSE:ADT) emphasized the investment in new products and partnerships, like the ADT+ platform and collaborations with Yale Lock and Google Cloud. Amidst the challenging environment, the company reaffirmed its full-year guidance and expressed confidence in its capital structure and the resilience of its business model. Given the essential nature of security services, ADT Inc. (NYSE:ADT) appears to be well-placed for long-term growth.
While the company continues to invest in next-generation products and ecosystems, it has been leveraging partnerships to enhance its offerings. ADT Inc. (NYSE:ADT) plans to upgrade its older equipment, targeting to improve customer retention and revenue per user. ADT Inc. (NYSE:ADT) expects that the launch of Trusted Neighbor should attract new subscribers from non-customers.
Apart from its focus on optimizing returns and expanding its total addressable market, Wall Street analysts expect that flexibility in capital allocation should act as a key driver for organic growth and shareholder returns. As a result of organic upgrades, ADT Inc. (NYSE:ADT) expects an uplift in revenue per unit. Its commitment to innovation and strategic partnerships should help it in positioning for resilience amidst economic headwinds.
As per Wall Street analysts, the shares of ADT Inc. (NYSE:ADT) have an average price target of $8.00. Ariel Investments, an investment management company, released its second-quarter 2024 investor letter. Here is what the fund said:
“Leading provider of automated security solutions ADT Inc. (NYSE:ADT) also traded up in the quarter. A top- and bottom-line earnings beat, highlighted by strong growth within the consumer and small business segment, low attrition, an improving payback period and margin expansion aided shares. Meanwhile, ADT sold its commercial business and is winding down its solar business to focus on profitability in the residential sector and pay down debt. We continue to believe ADT’s industry-leading brand and national presence, coupled with its Google and State Farm strategic partnerships, position it to be a prime beneficiary of growing demand for smart home technologies, including fully monitored residential security.”
7) CNH Industrial N.V. (NYSE:CNH)
Forward P/E as of October 8: 7.94x
Number of Hedge Fund Holders: 30
Average Upside Potential: 18.40%
CNH Industrial N.V. (NYSE: CNH) is an equipment and services company, that designs, produces, markets, sells, and finances agricultural and construction equipment.
Market experts opine that CNH Industrial N.V. (NYSE: CNH)’s brand power and technological leadership should continue to act as tailwinds for long-term growth. The company continues to focus on capitalizing on successful cost management strategies. The US Machinery & Construction industry has an overall positive outlook, which provides a supportive environment for CNH Industrial N.V. (NYSE: CNH)’s operations. Its strong position in the agricultural sector continues to establish a solid foundation for growth.
The company’s cost-out initiatives should act as a key differentiator in the current economic cycle. Its ability to effectively manage the cost structure, primarily in challenging times, should help CNH Industrial N.V. (NYSE: CNH) withstand challenging environment. Market experts believe that the company has a high-quality business, thanks to its pricing power amidst a consolidating market. CNH Industrial N.V. (NYSE: CNH)’s equipment and precision technology form a critical base for increased farm productivity and to address global food demand. The company has been executing well and continues to gain market share, which bodes well for its growth trajectory.
CNH Industrial N.V. (NYSE: CNH)’s restructuring program continued during Q2 2024 as per the plan, and it anticipates achieving a run rate reduction of 10% – 15% on total labor and non-labor SG&A expenses.
As per Wall Street, the shares of CNH Industrial N.V. (NYSE: CNH) have an average price target of $13.82. Longleaf Partners, managed by Southeastern Asset Management, released its second-quarter 2024 investor letter. Here is what the fund said:
“CNH Industrial N.V. (NYSE:CNH) – Agricultural machinery company CNH Industrial was a detractor in the quarter for two main reasons. First, the global ag equipment market went into the year depressed yet has still underperformed expectations, driven by weaker commodity prices and higher interest rates. Second, CEO Scott Wine’s departure, for personal reasons, has created a temporary management transition headwind. Despite these challenges, we remain optimistic about CNH’s long-term prospects. It is a high-quality business with pricing power in a consolidating market. Its equipment and precision technology are essential for increasing farm productivity and meeting global food demand amidst constrained land and labor inputs. CNH is executing well, gaining market share, and improving underlying margins. We also believe that the largest holder of CNH, our highly aligned partners at EXOR (which is a holding in our Global and International strategies), will continue the company along its path of FCF per share growth and increased focus on its core business. CNH is undervalued at 7 times earnings and is committed to returning 100% of FCF to shareholders through dividends and buybacks.”
6) The Middleby Corporation (NASDAQ:MIDD)
Forward P/E as of October 8: 12.38x
Number of Hedge Fund Holders: 25
Average Upside Potential: 24.24%
The Middleby Corporation (NASDAQ:MIDD) is engaged in designing, marketing, manufacturing, distributing, and servicing food service, food processing, and residential kitchen equipment.
The Middleby Corporation (NASDAQ:MIDD)’s strong brand equity, exceptional product performance, and competitive pricing should continue to help it sustain its growth trajectory. The company’s food processing business remains focused on automation, sustainability, and opportunities in pre-cooked bacon and poultry lines. The Middleby Corporation (NASDAQ:MIDD) has its focus on operational efficiency, cost reduction, and margin expansion. It continues to enjoy a strong pipeline of active projects in Food Processing, with potential for double-digit YoY growth in Q3 and Q4.
Notably, large projects in Commercial Foodservice provide increased margins, and the company also highlighted that the backlog with dealer channel partners remains stronger than before. In the recent earnings call, The Middleby Corporation (NASDAQ:MIDD) highlighted that a strong pipeline of M&A deals is expected to be more active moving forward.
The Middleby Corporation (NASDAQ:MIDD)’s strategic initiatives and focus on new product innovations, primarily in the technology and connectivity space, placed the company well amidst a challenging market. Industry veterans opine that the expected acceleration in unit development by restaurant chains should help the company’s growth framework.
Robert W. Baird increased its target price on the shares of The Middleby Corporation (NASDAQ:MIDD) from $155.00 to $169.00, giving an “Outperform” rating on 2nd August. As per Insider Monkey’s Q2 2024 database, 25 hedge funds reported owning stakes in the company.
Ariel Investments, an investment management company, released its second-quarter 2024 investor letter. Here is what the fund said:
“Additionally, leading food equipment manufacturer, The Middleby Corporation (NASDAQ:MIDD), declined in the period following an earnings miss driven by weaker-than-anticipated organic sales across the commercial, residential and food processing businesses. Importantly, management noted conditions are improving with channel inventories returning to normalized levels and order volumes trending in a positive direction. Meanwhile, profitability remains solid and MIDD continues to generate strong free cash flow. In our view, MIDD’s differentiated brands and kitchen innovations offer the latest in automation and advanced cooking technologies, positioning the company for growth and margin expansion as it serves the rapidly evolving needs of the food service industry.”
5) Maximus, Inc. (NYSE:MMS)
Forward P/E as of October 8: 15.22x
Number of Hedge Fund Holders: 22
Average Upside Potential: 25.69%
Maximus, Inc. (NYSE:MMS) operates as a provider of government services in the US and internationally.
The recent contract wins for Maximus, Inc. (NYSE:MMS) include task orders and contracts with the IRS, TSA, FEMA, and the state of Pennsylvania totalling more than $596 million. The revenue for FY 2025 is expected to be similar to FY 2024, with a strong focus on maintaining an adjusted OI margin of at least 10%. Maximus, Inc. (NYSE:MMS) continues to invest in technology modernization and customer services in a bid to support long-term growth.
The company enjoys a healthy pipeline of opportunities and anticipates organic growth via base growth and new work awards. Maximus, Inc. (NYSE:MMS) remains optimistic about its ability to navigate policy changes and administration shifts post-election. It has raised its FY 2024 guidance, with revenues anticipated to be between $5.25 billion – $5.35 billion. Maximus, Inc. (NYSE:MMS)’s ability to secure and manage government contracts should continue to help its growth prospects in the near term.
Talking about the contract wins, the company secured a $70 million Blanket Purchase Agreement (BPA) with the Department of Energy and a task order on the Office of Personnel Management Customer Support Center BPA. Such strategic developments, together with its focus on IT modernization and operational efficiency, should drive future growth.
The shares of Maximus, Inc. (NYSE:MMS) have an average price target of $110.00, as per Wall Street. ClearBridge Investments, an investment management company, released its first quarter 2024 investor letter. Here is what the fund said:
“We exited a position in Maximus, Inc. (NYSE:MMS), in the industrials sector, which operates as a provider of government services in the U.S. and internationally. Given our concerns over difficult earnings comparisons expected in fiscal 2024 after the resumption of Medicaid determinations, disruption from a potential change in presidential administration, and new uncertainties over potential AI disruption to its services over the next 10 years, we made the decision to sell the position.”
4) WillScot Holdings Corporation (NASDAQ:WSC)
Forward P/E as of October 8: 18.35x
Number of Hedge Fund Holders: 53
Average Upside Potential: 26.06%
WillScot Holdings Corporation (NASDAQ:WSC), formerly known as WillScot Mobile Mini Holdings Corp., offers workspace and portable storage solutions in the US, Canada, and Mexico.
Wall Street analysts believe that investments in climate-controlled storage and Clearspan categories should drive growth into 2025. WillScot Holdings Corporation (NASDAQ:WSC) is confident in the sequential unit on rent growth and positive performance in value-added products and services. The company expects to maintain a medium-term operating range of 20% – 30% for FCF margin. WillScot Holdings Corporation (NASDAQ:WSC) anticipates a stronger sequential pickup in Q4 2024 as compared to the previous year, with expectation for record growth in 2025.
Notably, the larger projects offer a foundational level of demand, and the potential for interest rate cuts is expected to benefit the transactional side of the market. In the recent earnings call, WillScot Holdings Corporation (NASDAQ:WSC) highlighted that seasonal rentals continue to turn into longer-term commitments, leading to an acceleration in retail activity in Q4. The company expects that value-added products and temperature-controlled storage should drive YoY growth in the next year.
The company’s ability to provide flexible, temporary space solutions throughout various industries places it well to capitalize on potential economic recovery and improved construction activity.
As per Wall Street analysts, the shares of WillScot Holdings Corporation (NASDAQ:WSC) have an average price target of $52.20. ClearBridge Investments, an investment management company, released its second quarter 2024 investor letter. Here is what the fund said:
“Stock selection in industrials was the leading detractor from relative performance, as the prospect of a higher-for-longer interest rates environment weighed on investors’ outlooks for industrial and nonresidential construction. Also impacted was WillScot Holdings Corporation (NASDAQ:WSC), the North American leader in turnkey modular space and portable storage solutions. The company’s stock price pulled back amid a decline in nonresidential construction starts and a less optimistic outlook for short-cycle industrials. However, WillScot continues to have high cash flow yields and a strong order backlog, which should help the company to weather near-term headwinds.”
3) APi Group Corporation (NYSE:APG)
Forward P/E as of October 8: 14.33x
Number of Hedge Fund Holders: 52
Average Upside Potential: 34.04%
APi Group Corporation (NYSE:APG) offers safety and specialty services worldwide. The company operates via the Safety Services and Specialty Services segments.
APi Group Corporation (NYSE:APG) closed 6 bolt-on acquisitions, which include Elevated Facility Services and remains on track to achieve the long-term value creation targets. The company expects a positive business mix impact on margins and it is optimistic about reaching a 13% or more adjusted EBITDA margin by 2025. APi Group Corporation (NYSE:APG) targets to reduce net leverage below 2.5x by year-end while, at the same time, continuing its M&A strategy. It has ~$400 million remaining under the share repurchase authorization.
While APi Group Corporation (NYSE:APG) has opportunities in numerous sectors, the data center market has been identified as a critical growth driver. In the recent earnings call, the company highlighted that the backlog increase was driven mainly by organic growth, with a small portion from acquisitions. Given APi Group Corporation (NYSE:APG)’s focus on margin expansion, disciplined acquisition strategy, and organic growth, it is well-placed for a strong H2 2024.
Overall, the company’s long-term alliances, regulatory protections, and its reach to serve large-scale clients are expected to act as growth enablers for the long term. As per Wall Street analysts, the shares of APi Group Corporation (NYSE:APG) have an average price target of $41.40.
Greystone Capital Management, an investment management company, released its second-quarter 2024 investor letter. Here is what the fund said:
“APi Group Corporation (NYSE:APG) has been in and out of client portfolios since inception (mostly in) and has earned our trust by carrying over the founding culture of the business on its route to becoming public, while increasing their focus on growing the more durable and higher margin fire safety services segment.
The start of 2024 has been a busy one for APG with the recent retirement of their Series B Preferred stock, along with the acquisition of Elevated Facility Services Group, a leading provider of contractually based maintenance and repair services for elevator and escalator brands. I was thrilled to see this deal announcement given the revenue and EBITDA contributions, but also because management likely sees similar opportunities to grow non-discretionary recurring revenue by winning incremental service work…” (Click here to read the full text)
2) GXO Logistics, Inc. (NYSE:GXO)
Forward P/E as of October 8: 14.75x
Number of Hedge Fund Holders: 29
Average Upside Potential: 35.67%
GXO Logistics, Inc. (NYSE:GXO) is engaged in providing logistics services worldwide.
GXO Logistics, Inc. (NYSE:GXO) saw a significant influx of new business, securing ~$270 million in new contracts. Market players believe that expansion in Germany, which includes a substantial deal with Tchibo and a $1 billion contract with Levi’s, should help the company’s long-term growth momentum. GXO Logistics, Inc. (NYSE:GXO) reinforced its existing relationships with renowned clients like Boeing, Guess, Marks & Spencer, and Raytheon. Also, the acquisition of Wincanton should accelerate the company’s growth prospects in the aerospace, defense, and industrial sectors in the U.K. and Europe.
GXO Logistics, Inc. (NYSE:GXO)’s business pipeline boasts $2.3 billion in high-quality opportunities and it remains confident in delivering its 2027 revenue and adjusted EBITDA targets. While the company expects a stronger recovery in the UK and Europe, the improvement in the situation in North America in the latter half of the year should bolster its near-term growth outlook.
GXO Logistics, Inc. (NYSE:GXO) highlighted that new business activity remains robust, primarily in the humanoid space, which should drive future efficiency. Overall, the company is expected to see continued growth, courtesy of strategic acquisitions, an emphasis on technology and innovation, and a healthy pipeline of new business opportunities.
With its strong focus on optimizing operations via AI and a customer-centric approach, the company is well-placed to enhance its market position and deliver sustained shareholder returns. JPMorgan Chase & Co. upped its target price on the shares of GXO Logistics, Inc. (NYSE:GXO) from $61.00 to $63.00, giving an “Overweight” rating on 9th July.
Mar Vista Investment Partners, LLC, an investment management company, released the first quarter 2024 investor letter. Here is what the fund said:
“GXO Logistics, Inc. (NYSE:GXO) experienced a setback this quarter. Customer volumes dropped 9%, stalling any organic growth. This slump was primarily driven by weakness in the omnichannel retail and consumer packaging sectors. As a result, the company’s 2024 forecasts fell short of analyst expectations, leading to a drop in share price after the announcement.
Despite cyclical headwinds, there are signs of a turnaround for GXO. Management indicated that customer volumes in January have already begun to improve. Additionally, they expect easier comparisons in the later half of 2024 to further aid recovery. To us, this suggests that the first half of 2024 may be the cyclical low point, with a rebound on the horizon. Over the next few quarters, GXO should get back on track towards achieving its long-term financial goals.”
1) Chart Industries, Inc. (NYSE:GTLS)
Forward P/E as of October 8: 9.17x
Number of Hedge Fund Holders: 47
Average Upside Potential: 53.19%
Chart Industries, Inc. (NYSE:GTLS) is engaged in designing, engineering, and manufacturing process technologies and equipment for gas and liquid molecules in the US and internationally.
In its recent earnings call, the company highlighted that it has exceeded its commercial synergy targets, and is anticipating $1 billion in synergies in Q3 2024. Chart Industries, Inc. (NYSE:GTLS) has a strong commercial pipeline throughout diverse markets, which includes data centers and energy transition. Wall Street remains optimistic about Chart Industries, Inc. (NYSE:GTLS)’s growth prospects as a result of record orders in the specialty segment, thanks to larger-scale CCUS projects and expanded applications.
The company continues to respond to potential growth opportunities in the UK, mainly in green hydrogen and industrial PCUS parks. Given the healthy sales momentum in the RSL segment, significant non-big LNG orders, and an emphasis on modular LNG solutions, Chart Industries, Inc. (NYSE:GTLS) is confident in its ability to achieve financial targets and exploit emerging market opportunities.
The Howden acquisition has been tagged as a transformational move in the company’s corporate strategy. The deal has significantly expanded Chart Industries, Inc. (NYSE:GTLS)’s operational scope, and has transformed it from a specialized equipment manufacturer to a more diversified industrial energy player. Wall Street believes that this acquisition should strengthen Chart Industries, Inc. (NYSE:GTLS)’s position in key growth markets, which include LNG, hydrogen, and various specialty sectors.
Analysts at Stifel Nicolaus reiterated a “Buy” rating, setting a $199.00 price target on 26th August. Aristotle Capital Boston, LLC, an investment advisor, released its second quarter 2024 investor letter. Here is what the fund said:
“Chart Industries, Inc. (NYSE:GTLS), an industrial equipment manufacturer that provides cryogenic equipment for storage, distribution, and other processes within the industrial gas and LNG, hydrogen, helium, carbon capture and water treatment industries was added to the portfolio. Strong forward demand for LNG and accelerating hydrogen opportunities coupled with company-specific improvement initiatives should benefit the company moving forward.”
While we acknowledge the potential of GTLS as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than GTLS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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